Treasuries snap longest rally since 2008 amid optimism on Spain

U.S. Reports

Treasuries trimmed losses earlier after the Commerce Department said U.S. household purchases, which account for about 70 percent of the economy, grew 1.5 percent in the second quarter, versus a previously reported 1.7 percent. An index of pending home resales fell 2.6 percent in August after a revised 2.6 percent gain in July, figures from the National Association of Realtors showed today in Washington.

The five-year, five-year forward break-even rate, a measure of the inflation outlook the Fed uses to help guide monetary policy, was 2.7 percent on Sept. 24, down from a 13-month high of 2.88 percent on Sept. 14. The 10-year average is 2.75 percent.

The central bank announced on Sept. 13 plans to buy $40 billion of mortgage securities a month in a third round of quantitative easing as it seeks to spur economic growth and lower a jobless rate stuck above 8 percent since February 2009. It said it would continue the purchases until the recovery is well-established.

A measure of relative yields on mortgage securities that guide U.S. home-loan rates was near a record low today amid bets the Fed will find a shortage of the bonds as it expands purchases. A Bloomberg index of yields on Fannie Mae-guaranteed mortgage bonds trading closest to face value was 60 basis points higher than an average of five- and 10-year Treasury rates. The record, 55 basis points, was reached Sept. 25. The 2012 average is 135 basis points.

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